The Trajectory Africa Distilled #03: The Infrastructure Behind Productive Lending
Open banking regulation, fragmented data, and punishing cash reserve ratios explain why creditworthy borrowers and affordable capital so rarely find each other in African markets.
Hello, Everyone!
In my second piece, I shared a "freestyled review of literature" — weaving in perspectives from experts to validate and flesh out the five VC-backable, infrastructure-building fintech opportunities Iʼd identified: trade-boosting credit, cross-border payments, consumer payments infrastructure (the evolution of payment service providers), niche neobanking, and asset-based financing.
As a reminder, trade-boosting credit is the idea that data liberated from silos can enable more effective underwriting and expand access to productive capital. Sounds compelling, right? But the more I've learned, the more I've had to reckon with why lending in Africa is genuinely difficult, and what this means for productive lending as an opportunity.
Tayo Akinyemi
Lending for production vs. lending for consumption
There's a tension here worth naming. Lending for production — credit that helps a business owner acquire a motorbike, stock inventory, or purchase inputs — is meaningfully different from lending for consumption, like a buy now, pay later (BNPL) loan for groceries. But even for businesses, Toffene Kama [link linkedin profile], Principal Investor at Mercy Corps Ventures [link to mercy corps ventures], suggests that credit won't necessarily lead to growth if it's simply masking a structural deficit that locks businesses into survival mode.
But a Harvard Business School study conducted with a large digital lender in Kenya (that I suspect is Tala) offers a more encouraging picture. The majority of loans in that study (73%) were taken to support business activity, compared to just 7% of microfinance loans. Borrowers saw a 20.8% increase in monthly income and a 23.5% greater rate of employment after accessing digital credit. The default rate was only 5%, despite a 180% APR, a result attributed to a system that required full repayment before new loans were granted, used repayment track records to determine future terms, and avoided coercive collection.
One study from one lender doesn't settle the debate. But it does suggest that productive lending, designed thoughtfully, can move the needle.
Consequence layer unlock
That bit of evidence notwithstanding, the infrastructure to scale productive lending remains incomplete. Maro Elias describes this through the lens of what he calls Credit 3.0: a four-layer model for digital credit. The first three layers — underwriting (assessing whether borrowers can repay), digital mandate (enabling withdrawals to secure repayment), and digital disbursement (deploying loaned funds) — are in varying stages of development. The emergence of the fourth layer, the consequence layer, has been hampered by the delayed introduction of open banking regulation. This layer documents the journey through the first three, scores the quality of the borrower, and routes that data back into underwriting.
As Maro points out, without it, potentially creditworthy borrowers can't access low-interest loans from financial institutions with low risk tolerances, because there isn't sufficient data to accurately assess their ability to pay. And that probably helps explain why credit penetration in Nigeria sits at just 14%. Open banking regulation is a framework that would mandate the sharing of financial data across institutions, and is key to unlocking this layer.
Coincidentally, Flutterwave's recent acquisition of Mono, an open banking startup, probably demonstrates what Maro anticipated: that Flutterwave and Paystack would likely build underwriting, the first layer of Credit 3.0. Flutterwave CEO Gbenga Ogboola highlights the need to protect infrastructure that’s essential to Africa’s financial services system in a piece explaining the rationale for the deal.
But one might argue that acquiring a core piece of open banking infrastructure ahead of enabling regulation suggests a defensive position of sorts. Presumably, internalizing this infrastructure will bolster Flutterwave's moat while neutralizing a competitive threat that might otherwise have been empowered by regulatory clarity — whenever it arrived.
"Lazy states" and core reserves
Even if open banking regulation eventually unlocks the consequence layer, there's a deeper structural impediment to productive lending in markets like Nigeria. As Samora Kariuki explores in his article on lending to Nigeria's real economy, the country wrestles with "lazy state" syndrome. The government makes a “rational” decision to fund the state through oil and gas revenues rather than making the infrastructural investments that would liberate the real economy.
This unleashes a cascade of consequences, which lead to a commodity dependence that drives macroeconomic instability and chronic dollar shortages. The Central Bank of Nigeria then manages this through restrictive monetary policy. One of the primary tools of this policy is the cash reserve ratio (CRR). While most economies require banks to hold 2–5% of deposits in a central bank, the ratio in Nigeria can reach 50%. But banks still have to pay interest to customers on deposits they can't deploy, which pushes lending rates as high as 30%. For most businesses, that's unaffordable. As a result, the companies powering Nigeria's real economy end up bearing the cost of keeping the naira stable, even though their success is the antidote to an economy dominated by oil.
Unlocking data and onchain liquidity
Despite these structural constraints, two opportunities are worth naming explicitly. The first is data unification. In a conversation about the future of SME payments, Samora argued that SMEs typically manage four or five different payment systems simultaneously — Flutterwave, Moniepoint, Paystack, bank accounts, cash — and each provider sees only a fragment of total cash flow. A lender looking at one account might see a business making 100,000 naira when it's actually making a million. Consolidating those data streams makes it possible to create credit products that can only be built once a complete financial picture exists.
The second is onchain liquidity. One of the consequences of an absent consequence layer, as we learned earlier from Maro, is that potentially credit-worthy borrowers can’t connect with capital from low-interest lenders. On The Stablecoin Podcast, Maya Caddle, who works on Business Development & Partnerships at the Solana Foundation, explained how Tala (the purported subject of the Harvard research), has moved its loan book onchain to expand the amount of capital it can access. This clearly broadens the scope of who can be a lender, and potentially helps make loans cheaper and more accessible.
The consequence layer, data unification, and onchain liquidity all point at the same underlying constraint: the infrastructure to connect creditworthy borrowers to appropriately priced capital is still being refined. The demand is real, and the evidence for productive lending's impact is growing. But the assembly work — across regulation, data, and capital markets — is what will increase or constrain the size of the opportunity.
Coming up
In the next piece, I'll turn to stablecoins and instant payment systems — where the infrastructure gaps are just as significant, and the politics are arguably more complicated.
ʼTill the next one…